Digital Euro, what is it and how the EU proposal works: it will not be a cryptocurrency

The European Commission has proposed the introduction of the Digital Euro, a digital currency issued by the ECB. Here is what it is and how it works.

July 4, 2023

Elizabeth Smith

On Wednesday 28 June, the European Commission presented a legislative proposal for the introduction of a digital euro issued by the ECB and available to the general public. According to a press release, the ECB welcomed the legislative proposal. Let us then try to understand what the Digital Euro is and how it will work

Table of Contents

What is the Digital Euro?

The Digital Euro will be a digital currency issued and managed by the European Central Bank and available to the general public. Which will have no particular differences from the traditional euro.

It will in fact be exactly like the ‘cash’ one, but will be managed in an exclusively digital version. Every digital euro, just like the traditional one in circulation will be guaranteed by the ECB.

It should be pointed out that it will not be a cryptocurrency. The digital euro will in fact be an ECB currency. And it will be the ECB’s task to guarantee not only its value. But also the security and stability of its value, which will be set at par value with euro cash.

he conversion rate between digital euro and cash euro will be 1:1.

Why does the ECB wants it?

Among the reasons why the European Commission and the ECB have embarked on the path of creating the digital euro is the growing trend in the eurozone towards electronic payment services. Which use private digital currencies.

For the European Commission, “The euro has been a symbol of Europe’s unity and strength since its inception 25 years ago. While cash is still prevalent and will remain widely accessible and accepted, more and more citizens and businesses are choosing to pay electronically’.

The digital euro has several objectives. Including, ensuring access to a public form of digital currency for payments, offering a digital currency that guarantees the same levels of privacy as cash, and promoting innovation and competition in retail payments.

The advantages

The digital euro, the European Commission and the ECB point out, will not replace the cash euro. But it will be an alternative to it that will offer a number of advantages and added value to consumers.

One of these advantages is its ‘universality’ in the euro area. Which overcomes the limitation of many private currencies that are not always accessible.

The digital euro, the commission explains, will be usable throughout the eurozone. Regardless of where payers are located and which commercial bank or payment service provider merchants use. The only prerequisite is that the merchants have a functioning electronic payment receipt device.

Another advantage is its speed. Payments will be sent and received instantaneously 24 hours a day, 7 days a week.

One of the limitations of private digital currencies is their dependence on the Internet, and it is necessary for the device to be connected to the network in order to register the transaction correctly.

This limitation is overcome by the digital euro. Which can be used even in the absence of the internet as long as one is physically close to the other party to the transaction, be it another person or a shop. Furthermore, does not require the precondition of a bank account and, just like cash, can be used and exchangedit freely.

The conversion between is set at a 1:1 ratio. And will always be possible on a bilateral basis. Which means that at any time it will be possible to convert it into a cash euro and vice versa, all with the utmost protection of privacy.

When will it arrive?

The creation and introduction will require a lot of work that will begin with an investigation phase. That, according to an ECB note, should be completed by July 2023.

At the end of this phase, the ECB will further develop and test technological solutions and business arrangements. And a possible decision of the Governing Council on the issuance of a digital euro would only be taken after the adoption of a legislative act. The note reads:

“The Governing Council of the ECB will then decide whether to move to the next phase of the project. In the next phase, the ECB would further develop and test the technical solutions and business arrangements. A possible decision by the Governing Council to issue a digital euro would be taken only after the legislative act is adopted.”